What Is Supply Chain Distribution?

What is supply chain distribution?

Supply chain distribution is the method businesses use to get their products into customers’ hands. Distribution plans largely depend on a business’s financial and operational goals. For example, a company may choose to sell products directly to customers or work with a third party to distribute its offerings.

“Supply chain distribution is the process of moving goods from the point of origin to the point of use and everything in between,” explained Bede Ramcharan, founder, president and CEO of Indatatech. “It ensures that products are delivered efficiently, on time, in the right condition and at the best price available.” 

A well-organized plan is necessary for successful supply chain distribution. When creating this plan, businesses must review the various distribution options available to them and select the best channel for their customer base and product line. A carefully executed distribution plan balances supply and demand, reducing the cycle time between when a customer places an order and when they receive it. 

“At its core, distribution is about aligning supply with demand — efficiently, cost-effectively and with the ability to adapt to market fluctuations,” noted Lucas Manganaro, managing director of business performance improvement at Protiviti. “It’s a critical link between value creation (production) and value realization (sales).”

What is the difference between supply chain distribution and logistics?

Ramcharan noted that in supply chain management, the terms “distribution” and “logistics” are often used interchangeably.

“Effective distribution relies on the coordination of logistics, inventory management, demand planning and technology to optimize cost, speed and service levels across the supply chain,” Ramcharan explained.

Still, these terms have distinct meanings.

Logistics

Logistics is the process of moving products from their point of origin (where they’re made) to where customers can purchase them. It’s all about finding the fastest, most efficient and cost-effective ways to get items from point A to point B and typically involves: 

• Materials handling
• Supply-and-demand planning
• Information flow
• Supply chain security
• Inbound transportation management
• Outbound transportation management
• Fleet management
• Production
• Network design
• Order fulfillment
• Third-party logistics (3PL) management, but only if you outsource your logistics processes

Distribution

Supply chain distribution is logistics in practice. If logistics is the process of determining how products will be transported from the manufacturer to the point of sale, then distribution describes the actual movement of those products to their intended destinations.

For example, let’s say your warehouse facility produces 100 units of your product daily and a nearby department store places an order of 300 units. Logistics is the process of determining how to transport those 300 units to the department store in a timely and cost-efficient manner. Once you’ve nailed that down, distribution is the act of successfully getting the order to the department store. Distributing your product involves inventory management, packaging and warehousing.

What are the four channels of distribution?

Mark Morgan, president of global commercial operations at Kinaxis, explained that a distribution channel or network is the means by which a company gets its products from the manufacturer to the customer. “The shape of a distribution channel is impacted by factors including end-customer product demands, product availability and variety, returnability, response time and customer experience,” Morgan said. 

The four primary distribution channels in the supply chain are:

1. Direct sales: Direct sales involve the straightforward distribution of goods from the manufacturer or seller (in the case of direct sales businesses) directly to the customer. It’s best for products with a middle price point that are affordable enough to have broad appeal. Direct sales also often require products with an extended shelf life.
2. Brokerage: Brokers work as a go-between for manufacturers and retailers. For example, a food manufacturer may hire a broker to sell its products to grocery stores. Brokers don’t ship the products directly; they handle the sales process and contracts.
3. Wholesale: Wholesalers purchase products in bulk from manufacturers and resell them at a higher price point. As resellers, wholesale companies assume more risk if products don’t sell, since buyers purchase directly from them.
4. Hybrid distribution: In a hybrid distribution model, a company may use multiple strategies to get its products to customers. For example, it might combine direct sales with wholesale partnerships. Franchises are a common business model that may have more than one type of distribution channel.

Each channel shares the following key components under the management “umbrella”:

• Distribution: The physical logistics of moving inventory along a chain of distribution
• Inventory management: The entities that control how much is moved and where it is stored
• Customers: Identifying who the “real” customers are and keeping their loyalty despite all the changes to the supply chain and distribution channel

What distribution channel is best for my business?

Not all distribution channels work well for every business, so it’s important to examine all possibilities and build a strategy that best serves the needs of your business and customers. In some cases, as operations evolve and external factors change, organizations may need to expand their distribution channels or even switch to another model.

“There are tradeoffs companies must consider when designing their distribution networks, where they must balance logistics costs, including facilities and transportation, and customer responsiveness,” Morgan explained. “Companies should reevaluate and reshape their distribution networks over time to keep up with changing demand patterns.”

Manganaro noted that the right distribution channel for your operation may require a combination of channels to provide the most cost-effective and efficient process. 

“The key to success is understanding channel segmentation — recognizing that not all products, markets, or customers require the same path to market,” Manganaro said. “The most effective strategies often involve hybrid models that optimize reach, speed and cost, while balancing data ownership and operational complexity, depending on product type and customer profile.”

How are distribution channels changing?

While four primary distribution channels still dominate, new technologies and shifting consumer behaviors are changing the way products reach end users. Today’s distribution chain is facing unprecedented changes that pose both challenges and opportunities for all participants in the supply and distribution trade, and it’s important to keep up with new trends and technologies. 

Partners along the “traditional” supply chain are being challenged by new entrants and platforms across many industries. The waters have been muddied by the internet and the growing role of consumers and end users in distribution — particularly through e-commerce and digital platforms. 

Examples of emerging distribution trends include:

• Direct-to-consumer (DTC) models, where brands bypass retailers entirely
• Subscription-based services that automate repeat purchases
• Third-party marketplaces like Amazon, Alibaba and Walmart Marketplace
• Omnichannel fulfillment strategies combining physical and digital retail
• Social selling and influencer marketing sales on platforms like TikTok and Instagram

“Emerging models like subscription services or third-party marketplaces, such as Amazon and Alibaba, cater to shifting consumer preferences for convenience and variety,” Manganaro explained.

Supply chain distribution best practices 

Supply chain distribution involves many key players and moving parts. To ensure everything runs efficiently and effectively, keep the following best practices in mind. 

Plan the chain of distribution carefully.

Manage your plan from within your chain, not above. Statistics and historical data won’t give you the whole picture. It’s important to talk to your partners and understand their needs.

“From customers and carriers to warehouse teams and customs brokers, we align all stakeholders through clear communication and centralized management,” explained Eric Muhlenbruch, director of contract logistics at Gebrüder Weiss. “This approach eliminates confusion and enhances collaboration between our team and our customers across all phases of distribution.”

Choose your distribution chain players wisely.

Who do you trust to help make your business successful? The answer should be your distribution partner. Not only is that partner a known quantity, but they can also help you expand into the growing global market. Thanks to globalization, your most valuable partner might be located halfway around the world.

Muhlenbruch credits strong, transparent relationships with suppliers and logistics partners as key to the distribution success of Gebrüder Weiss. “Gebrüder Weiss coordinates closely with vetted carriers and vendors to ensure dependable performance — even amid shifting market conditions,” Muhlenbruch explained.

Ramcharan agreed that even as technology reshapes distribution, collaboration across partners remains a necessary ingredient for success.

“At the end of the day, the human component is still key to communication among partners,” Ramcharan said. “Strong relationships and data sharing with suppliers, carriers and customers improve and build resiliency into the distribution network.”

Use top-rated distribution chain management software.

Technology has made supply chain management for distributors manageable and reliable. Distribution management software helps with planning, projecting and implementing the chain of distribution.

“Warehouse management systems (WMS), transportation management systems (TMS) and now artificial intelligence (AI) are all systems that streamline operations and enhance visibility,” explained Ramcharan.

Track supply chain metrics.

Ensure your supply chain management strategy is working effectively by concentrating on key performance indicators (KPIs), including your inventory-to-sales ratio, perfect order rate, supply chain cycle time and warehousing costs. Monitoring these KPIs helps businesses identify bottlenecks and areas of success, ensuring optimal performance that improves cash flow and customer satisfaction. 

“[Tracking metrics leads] to transparency and shared understanding, rallying teams around common objectives and empowering stakeholders with actionable insights and data-driven decision-making capabilities that drive efficiency, sustainability and resilience across the supply chain ecosystem,” Morgan explained. 

Monitor distribution in real time.

It’s essential to create and implement systems that monitor your supply chain in real-time to help keep everything running smoothly. If you can spot problems early enough, you can fix them before they turn into costly delays or unhappy customers.

“[One of] the best practices for supply chain distribution includes keeping real-time updates, watching for delays and making any quick necessary adjustments,” noted Lee Williams, CTO of AutoVentive.

“Forward-thinking leaders also adopt a control tower mindset by integrating systems, data and cross-functional teams to monitor and dynamically orchestrate the flow of goods in real time,” said Manganaro. “Equally critical is fostering a data-savvy, collaborative culture that empowers teams to execute these strategies effectively.”

Purchase in bulk to reduce costs.

When purchasing inventory, consider buying in volume through either blanket orders or standing orders to save money. 

• Blanket orders: With blanket orders, supplies are delivered as needed over time at a set price and quantity. 
• Standing orders: Standing orders are less flexible and deliver supplies in specific quantities at predetermined times throughout the year.

Buying in larger quantities often yields discounts for businesses and reduces the administrative burden compared to making smaller, more frequent purchases. 

Build a resilient system.

Optimizing costs and reducing delivery time are essential considerations when planning a distribution chain, but an inflexible system that doesn’t account for risks can upend operations. To protect your business, plan for disruptions and develop contingency plans to mitigate potential risks. 

“Supply chains today face constant disruption from geopolitical shifts, environmental concerns and market volatility,” explained Jennifer Chew, VP of solutions and consulting at Bristlecone. “Organizations that embed adaptability into their core operations will be better positioned to respond to evolving economic conditions.” 

Put the customer first.

The end goal of any supply chain is to sell a product to consumers. While there are many important factors to consider, the customer should be at the center of every supply chain design and decision.

“Build distribution networks that prioritize end-customer needs, such as same-day delivery or personalized fulfillment options, to drive loyalty and differentiation,” Manganaro advised. 

No matter your business or industry, customer loyalty is essential to achieving long-term success. When businesses prioritize delivering products to customers when and how they need them, they help ensure repeat business, which in turn helps the business thrive and benefits every player along the supply chain.

Max Freedman and Sean Peek contributed to this article.